Facing a dispute with your franchisor can put you in a difficult position. On the one hand, it is important to stand up for your rights as a franchisee. On the other, you have your relationship with your franchisor to consider, and there are costs involved in taking (or defending against) legal action. With this in mind, it is best to speak with a franchise lawyer sooner rather than later.
Franchisees can (and do) face disputes with their franchisors in a wide range of circumstances. If you are facing a dispute with your franchisor, it will be critical to make informed decisions about your next steps. While there are costs involved in pursuing dispute resolution, incurring these costs will be worth it in some cases. At the same time, it may also be possible to work out an amicable resolution that serves everyone’s best interests going forward.
An experienced franchise lawyer should be able to help you decide how best to proceed under the circumstances. While it is ultimately up to you to decide what to do, an experienced lawyer can provide the advice and insights you need to feel confident in your decision-making. In many cases, taking a proactive approach can help facilitate an efficient and favorable resolution—but knowing what approach to take requires a clear understanding of the legal, financial, and practical issues involved.
5 Common Reasons for Contentious Disputes Between Franchisors and Franchisees
Disputes between franchisors and franchisees can involve a wide range of issues—and different types of disputes will require different approaches. Here are five common reasons for contentious franchisor-franchisee disputes. We discuss potential next steps below:
1. Disagreements Regarding Franchisees’ Financial Obligations
Disagreements regarding franchisees’ financial obligations are a common source of contentious disputes. This includes disagreements over royalty and advertising fee calculations, as well as disagreements over mandatory purchase obligations.
2. Disagreements Regarding the Scope of Franchisors’ Authority
Disagreements regarding the scope of franchisors’ authority are a common source of contentious disputes as well. This includes disagreements over franchisors’ rights to impose system modifications—which can often prove costly (if not cost-prohibitive) for franchisees.
3. Territorial Encroachment
Territorial encroachment is another common (and potentially costly) issue for franchisees. If you have an exclusive or protected territory and your franchisor or another franchisee is encroaching on your rights, it could be important to take legal action promptly.
4. Franchisor Refusals to Approve Transfers and Renewals
While franchise agreements usually provide franchisees with the “right” to transfer or renew their franchise, this right often comes with significant strings attached. As a result, franchisor refusals to approve transfers and renewals are a common source of disputes.
5. Discrimination and Other Unfair Franchise Practices
Franchisees can face substantial losses (including the potential loss of their investment) due to discrimination and a wide variety of other unfair franchise practices. If your franchisor is engaging in any of these practices, taking legal action promptly could be important in this scenario as well.
How an Experienced Franchise Lawyer Can Help
While franchisees are often hesitant to engage legal counsel (often due to concerns about the costs involved), hiring an experienced lawyer can be a key first step toward securing an efficient and favorable resolution when facing a dispute with your franchisor. Here are just some of the ways an experienced franchise lawyer can help in this scenario:
- Assessing Your Legal Rights – Your lawyer can assess your legal rights under your franchise agreement, your state’s franchise law (if any), and any other applicable laws and court decisions.
- Assessing Your Legal Risk – Your lawyer can assess your legal risk under the circumstances, including any potential risk of losing your franchise.
- Assessing Your Legal Options – Your lawyer can review your franchise agreement’s dispute resolution provisions to assess your legal options—including whether you would be required to pursue mediation or arbitration.
- Communicating with Your Franchisor – If warranted, your lawyer can communicate with your franchisor on your behalf, or coach you on how to communicate with your franchisor with the goal of achieving an amicable resolution.
- Pursuing Formal Legal Action – If necessary, your lawyer can pursue formal legal action on your behalf. Or, if your franchisor takes legal action against you, your lawyer can defend you to the fullest extent possible.
FAQs: Franchisor-Franchisee Dispute Resolution
What should I do if I am facing a dispute with my franchisor?
If you are facing a dispute with your franchisor, the specific steps you need to take depend on the specific circumstances at hand. To ensure that you are making informed and strategic decisions, you should consult with an experienced franchise lawyer promptly.
Am I required to mediate or arbitrate with my franchisor?
Whether you are required to mediate or arbitrate with your franchisor depends on both: (i) the nature and subject matter of the dispute you are facing; and (ii) the terms of your franchise agreement. While franchise agreements commonly require mediation or arbitration (or both), there are often carveouts for certain types of disputes.
Do I need a lawyer if I am facing a dispute with my franchisor?
When facing a contentious and high-stakes dispute with your franchisor, hiring an experienced franchise lawyer is one of the most important steps you can take to protect your legal and financial interests. An experienced franchise lawyer can help you make informed decisions with your long-term best interests in mind and provide legal representation as needed.
Schedule a Call with National Franchise Lawyer Jeffrey M. Goldstein
If you are facing a dispute with your franchisor and have questions about what you can (and should) be doing to protect yourself, we invite you to get in touch. To schedule a call with national franchise lawyer Jeffrey M. Goldstein as soon as possible, call us at 202-293-3947 or tell us how we can reach you online today.
